Headline Stories – The Bhutanesehttp://thebhutanese.bt
Leading the way.Tue, 15 Aug 2017 06:11:10 +0000en-UShourly1https://wordpress.org/?v=4.6.1India’s CEA declines Bhutan’s requests on CBTEhttp://thebhutanese.bt/indias-cea-declines-bhutans-requests-on-cbte/
http://thebhutanese.bt/indias-cea-declines-bhutans-requests-on-cbte/#respondSat, 12 Aug 2017 06:52:31 +0000http://thebhutanese.bt/?p=16088The Bhutanese government around two months ago, through diplomatic channels, sent a letter to the Indian government over Bhutan’s various concerns over the Cross Border Trade in Electricity (CBTE) guidelines issued on 5th December 2016.

The CBTE guidelines, though meant to govern electricity trade between India and its neighbors, had several disadvantages for Bhutan on setting of tariff rates beyond the government formula, access to India’s primary power market, type of hydropower investments and also a 51 percent Indian ownership in any power trading company among others.

A reply to the issue had come on 26th July 2017 from the Central Electricity Authority (CEA), India’s main electricity regulator, which according to sources does not address Bhutan’s concerns. The CEA falls under the Power Ministry of India.

One main issue pointed out by Bhutan in its initial letter was that the CBTE guidelines restricts Bhutan’s access to the Indian Power Exchange as Bhutan cannot get access to the prime ‘day ahead’ market where power bidders bid competitively for energy rates.

Instead Bhutan was given to access to only ‘term ahead’ contracts and contingency contracts which come in only later and there is no competitive bidding.

Bhutan pointed out that this CBTE stipulation also violated the Inter Government Agreement (IGA) between Bhutan and India on Joint Venture projects.

The IGA, which was signed in April 2014 between both the governments, says that 70 percent of the power would be sold as per the long term power purchase agreement route between the two governments.

It says the remaining power which is 30 percent can be sold through the market mechanism which would mean accessing India’s energy market to aim and get higher prices.

However, the CBTE exactly restricts this market access for the 30 percent of the power as stated above.

The Bhutanese government’s letter stated the IGA agreement and said that JV projects and Bhutan government owned and controlled projects and trading companies should be allowed full access to all categories of India’s power markets.

The CEA in its reply said that trading through the Indian Power Exchanges is being developed in a phased manner to facilitate smooth export and import of power and it restates that the CBTE covers only the term ahead and contingency contracts.

Without providing a clear answer CEA says that all other categories of contracts in the power exchange market can be considered on review by the Power Ministry in consultation with the Central Electricity Regulatory Commission (CERC). It says the guidelines, therefore, does not provide any restriction.

However, the Bhutanese side is not happy with this answer as both the larger CBTE policy and its rules formulated by India’s Power Ministry in consultation with the Ministry of External Affairs already restrict access to the primary market. The issue is of clear rules versus verbal assurances that Bhutan’s case can be considered.

Bhutan had written saying that access to all categories of contracts in the power exchange market should be a clear rule saying so instead of saying exceptions could be made so that there is certainty on access to the market.

Already the 126 MW Dagachu project owned 74 percent by the government and 24 percent by Tata Power is not allowed to even trade in India’s energy market though a request was made to the CERC by Tata Power from September 2014.

The National Load Dispatch Center (NLDC) of India which is a fully owned subsidy of the Power Grid Corporation of India Limited, an Indian government owned company, opposed the entry of Dagachu into the Indian power exchange market at the time saying that when multiple sellers from Bhutan sell power at Power Exchanges in India, ‘the discovery of the real price of power’ from Bhutan will happen in India.

The CERC at the time decided to await future directions on the issue from the Ministry of Power and requested it to issue necessary guidance with regard to cross border trading in electricity through the Indian Power Exchange.

Therefore, the CBTE restricts the handful of Bhutan’s government owned projects from getting access to the power market.

Another issue raised by Bhutan is that the CBTE says that power by India can be bought only from a power trading company in another country that has more than 51 percent Indian ownership. This would put an end to the government owned Druk Holding and Investments’ (DHI) plans announced last year of exploring the possibility of setting up of a Bhutanese power trading company that takes power from projects in Bhutan and trades it in India. The aim was that it could lead to better prices in the long run with more bargaining power and also by exploring the Indian market.

Here the CEA says that there is no provision where any licensed power trader from a neighboring country even if it is 100 percent owned or even controlled by the government of that country can trade with Indian entities. The CEA says that for such cases such entities are eligible to participate after a case by case basis.

Bhutan also requested that for the removal of a particular provision in the CBTE which says, “The regulations so framed by the CERC shall be binding on all the participating entities.

The CEA here said that the regulations would be binding on Indian soil to all participating entities and as such would not be applicable in neighboring countries.

Bhutan pointed out that India, Bangladesh and Bhutan are discussing the development of hydropower projects under trilateral cooperation mode but since CBTE is for bilateral electricity trade, a separate framework is needed for the three countries.

Here CEA said that transmission of electricity through Indian territory would be governed by CBTE even for such projects as multilateral trade of electricity is extended through

Bhutan pointed out that in the introduction of CBTE a clause refers to the spirit of the SAARC Framework Agreement for Energy Cooperation and also a need to frame guidelines on cross border trade with neighboring countries by India. Bhutan pointed out that the CBTE appears to cover only India’s bilateral electricity trade.

CEA said that the SAARC framework says that trade of electricity across a country is to be governed by the laws of the respective countries. It says that therefore electricity trade between India and Bhutan will be as per the respective laws of both countries. The CEA goes on to say, the CBTE guidelines are framed keeping in view that any trade across or through India is to be governed by these guidelines irrespective of whether it’s a trade between two countries or through the territory of India.

Bhutan has also asked for a clarification on the CBTE clause which says that Indian entities can import power from projects confined to RGoB and GoI owned, funded or controlled projects and also private companies that have 51 percent Indian ownership. Bhutan has asked what constitutes government owned or controlled as it could have implications on JV and other projects by Bhutan.

Here the CEA has given a bland reply stating ownership by the government is as per the laws of that country.

Bhutan is concerned that this clause could restrict the hydro investment model in Bhutan. An example, is if the Bangladesh government or a foreign financial institution wanted to invest in Bhutan’s hydropower sector.

The sub text of the above points by Bhutan is that that it is unhappy with the current form of the CBTE which disadvantages Bhutan’s power sector.

Apart from the above points raised in the reply by CEA, Bhutan is also concerned with other issues in the CBTE.

One is that the CBTE says that the government to government negotiations on tariff will be adopted for perpetuity leaving out the scope for market mechanisms.

Another issue is that the CBTE says that instead of power suppliers from outside India (like Bhutan) asking for bids they have to put in their bids when Indian entities want the power.

For Bhutan this means instead of inviting bids from the Indian power market to get the highest price projects, it would have to give its lowest bid while competing with other power suppliers within India and the region. This would mean bottom rates for such projects.

According to sources the government is expected to draft a reply soon but this communication by CEA would likely mean that the JV projects would still be in the freeze mode as they would not be commercially viable without a clear and full access to the power market.

The whole issue is also complicated by the fact that in the 2017-18 fiscal year India is projected to by power surplus by 8.8 percent and tariff rates even in the power exchange are low.

Though nobody has made an official statement there is surprise in Thimphu that such restrictive rules are being applied in a sector which is vital to Bhutan’s economic interests and are not just economic projects but also ‘political’ projects between the two nations.

]]>http://thebhutanese.bt/indias-cea-declines-bhutans-requests-on-cbte/feed/0Govt to forego Nu 14 bn revenue in 12th plan due to GSThttp://thebhutanese.bt/govt-to-forego-nu-14-bn-revenue-in-12th-plan-due-to-gst/
http://thebhutanese.bt/govt-to-forego-nu-14-bn-revenue-in-12th-plan-due-to-gst/#respondSat, 12 Aug 2017 06:48:55 +0000http://thebhutanese.bt/?p=16085The Prime Minister outlined both challenges and opportunities for Bhutan due to GST in India

A presentation by the Ministry of Finance for the Bhutan Chamber of Commerce and Industry (BCCI) showed that the government would forego Nu 14 bn in total revenue due to India’s Good and Services Tax (GST) in the upcoming 12th five year plan.

The meeting chaired by the Prime Minister and attended by the Finance Minister and Minister of Economic Affairs along with their respective secretaries and directors was primarily to inform the BCCI of what the government is doing and also get feedback from the business community.

Of this the bulk of it would be through losses of Nu 12 bn in the Excise Duty Refund and another Nu 2 bn in reduced sales tax and green tax.

Earlier, before GST, the Indian government collected excise duty for exports of consumer goods and raw materials to Bhutan and then refunded it to the Bhutanese government every year. However, with GST India no longer has excise duty for exports.

With reduced prices of goods being exported to Bhutan, the sales tax and green tax which is charged on the price of the imported goods would also go down.

The government has also estimated that imports in 2017 would go up by another Nu 8 bn meaning wider trade deficit.

The increased imports due to lower prices are expected to also hit the rupee reserves.

The negative impact could also been seen in terms of the fact that Bhutanese cement is now 6 percent more expensive than Indian cement while steel industries also saw a 3 percent increase in export prices.

On the positive side the Ministry of Finance said that the top ten import commodities would become cheaper by 14 percent while prices of most consumable items are expected to fall by around 5 percent on an average.

Raw materials are also expected to become cheaper for manufacturers. There will be no impact on the prices of essential goods like rice, oil, vegetables, salt, sugar, milk etc.

Apart from that the tax burden for the trading sector is expected to drop by around five percent at the point of entry.

It was also highlighted that in order to get GST exemption businesses would be encouraged to do electronic filings and the sourcing of goods from GST certified businesses in India would increase.

The Prime Minister Lyonchhen Dasho Tshering Tobgay said that it was an opportunity for businesses along the border with India to get more competitive as their GST exempt goods would be cheaper drawing not only Bhutanese shoppers but also Indians.

The PM, however, requested the business community to make sure to not only get GST exempt imports through proper GST certified dealers, but also pass on the GST benefits to consumers in Bhutan.

He called on the Bhutanese industry to take advantage of the fact that the 12.5 percent excise duty on raw materials had been removed which had been a long standing industry demand. The PM said that this was a chance for the industry to be more competitive.

The main highlight of the meeting was that after the government gave an update on its activities on the GST front it calmed many frayed nerves in the business community, that were apprehensive of what would happen.

The PM said for the cement industry which involves two government giants Dungsam and Penden apart from Lhaki one way would be to give priority to Bhutanese cement in hydro projects in Bhutan as Bhutan was still importing too much cement.

In response to a query from the Construction Association of Bhutan (CAB) the Finance Secretary Nim Dorji sad that given the fall of prices in construction items there would also be a consequent fall in the price of construction projects in Bhutan. He said that so far the contract documents took care of change in prices with the focus being price escalation but this time around the opposite would be applicable.

Lyonchhen also asked a committee of the Ministry of Works and Human Settlement, Ministry of Finance, CAB and Ministry of Economic Affairs to address the issue of GST’s impact on the Construction sector.

The government also presented the action taken on submissions by the private sector on the GST.

One was on the exemption of GST for Bhutanese exports to India which the PM said is not feasible as GST is applicable to all imports into India and also within India. Lyonchhen said that compared to other third countries Bhutanese exporters still enjoyed the advantage of not having to pay custom duties for export to India.

He reminded the gathering that so far a lot of Bhutanese industries had enjoyed and thrived on the lower tax difference in Bhutan which India had allowed for Bhutan as a friendly country. The PM said the only difference now is that tax advantage is now gone and the playing field is now more level.

On the private sector’s request of deferring the GST for Bhutanese exports from the point of entry to the point of sale in India the MoF said that requests had already been made to India in three June and July meetings. The matter is under consideration given that India itself is still implementing the GST.

The private sector also requested the exemption of GST on export of services to Bhutan with payment to be made in rupees instead of convertible currency. The matter has been put up to the Indian government and is under consideration.

Similarly request has also been made to India for GST exemption on transport services for goods imported to Bhutan as there is no continuous railway line into Bhutan.

The MoF said that the private sector’s proposal for refund of sales tax and custom duty on import of secondary raw materials is covered in the fiscal incentives.

The MoF is also reviewing the BCCI proposal to increase the revenue base for the government by introducing service tax for consultancy and transport services and sales tax on consumables and FMCG products like processed foods, toiletries, soft drinks etc.

Lyonchhen directed the Ministry of Finance and the Ministry of Economic Affairs to ensure that GST benefits are passed on to consumers and that there are no diversions in the border areas.

The PM also said that the private sector can keep approaching the government for any issues.

One issue that was highlighted during the meet was that several Indian custom checkpoints are not yet aware of GST being exempt for Bhutan and so they are levying GST for exports to Bhutan.

Here the MoF said that there is confusion within India on GST as it was at an implementation stage and so custom checkpoints are playing it safe.

The MoF said that based on the third meeting with the Indian government in July another notification had been sent to all custom check points on the Indian and Bhutanese border.

Another issue that emerged was on the impact of GST on the Ice Beverages Bhutan based in Samtse that employs around 100 people. This is because the GST is among the highest in this bracket. The PM asked the company to meet and put up a relevant proposal.

]]>http://thebhutanese.bt/govt-to-forego-nu-14-bn-revenue-in-12th-plan-due-to-gst/feed/0Financial crisis in Dungsam Cement due to Nu 400 mn in unpaid dues by hydro projectshttp://thebhutanese.bt/financial-crisis-in-dungsam-cement-due-to-nu-400-mn-in-unpaid-dues-by-hydro-projects/
http://thebhutanese.bt/financial-crisis-in-dungsam-cement-due-to-nu-400-mn-in-unpaid-dues-by-hydro-projects/#respondSat, 12 Aug 2017 06:43:49 +0000http://thebhutanese.bt/?p=16082The country’s biggest cement plant, Dungsam Cement Corporation Limited (DCCL) is facing a financial crisis in commissioning timely payments to its transporters and suppliers as the Corporation has not able to claim huge overdues from the contractors of the major Hydro Power Projects, Punatsangchu I and II and Mangdechu.

DCCL’s total overdue receivable from the contractors comes to around Nu 400 mn out of which Nu 200 mn is the credit sales that are already overdue and Nu 190 mn falls under the credit within the payable period of 45 days.

The Managing Director of DCCL, Sonam Jigme said that the company has been following up on the issue by constantly corresponding through letters, exchange of emails or through calls with contractors of the Hydro projects for timely payment of the dues.

“With the delay in the clearance of credit even after the maturity period of 45 days by the contractors, we are finding it difficult to pay to our transporters on time. We are also worried that our suppliers might stop supplying raw materials, which will greatly hamper our production,” said Sonam Jigme.

The Indian contractors with the hydropower projects are Jaiprakash Associate, L&T Construction, Hindustan Construction Company, and Gammon E&C Private Limited.

According to the financial records from the DCCL, the total credit to Hindustan Construction Company as of date is around Nu 34 mn, out of which Nu 17 mn are within the credit period of 45 days while Nu 16 mn of credit has already reached maturity period of 45 days.

HCCs total credit for its other project in Tangsibji stands at Nu 38 mn out of which Nu 31 mn has already reached the credit maturity and only about Nu 7 mn is within the credit maturity period.

Likewise the records showed the total credit to Jaiprakash Associate in Punatsangchu was around Nu 56 mn out of which Nu 30 mn is within the credit period of 45 days and the credit of Nu 25 mn has crossed the maturity period. But the paper learnt from the Project Manager that the company has issued Post Dated Cheques worth Nu 32 mn on the 10th of August to DCCL.

The Jaiprakash Associate in Mangdechu stands the highest with total credit of more than Nu 194 mn out of which Nu 127 mn has already reached the maturity period and Nu 67 mn is within the credit period of 45 days.

The Project Manager, Harish Aggarwal admitted that there has been delay in the payments and that they’ll be clearing all the dues as soon as possible.

The total credit sale of Gammon E&C Private Limited for Punatsangchu is Nu 36 mn out of which 27 mn of credit have matured and Nu 8 mn remains within the maturity period.

The total credit of Gammon E&C Private Limited in Mangdechu is Nu 34 mn. L&T Construction’s total credit stands at 19 mn.

The Managing Director also pointed that the management has not revised the cement rates for the hydro power projects for the last three years whereas the prices for the locals have been revised yearly.

]]>http://thebhutanese.bt/financial-crisis-in-dungsam-cement-due-to-nu-400-mn-in-unpaid-dues-by-hydro-projects/feed/0Breaking: Dealers can import GST discounted vehicles but taxes to be levied at point of salehttp://thebhutanese.bt/breaking-dealers-can-import-gst-discounted-vehicles-but-taxes-to-be-levied-at-point-of-sale/
http://thebhutanese.bt/breaking-dealers-can-import-gst-discounted-vehicles-but-taxes-to-be-levied-at-point-of-sale/#respondFri, 11 Aug 2017 06:09:21 +0000http://thebhutanese.bt/?p=16070The Ministry of Finance in a circular effective from 11th August 2017 has said that vehicle dealers in Bhutan can now import vehicles from India which have the Goods and Services Tax (GST) exemption. This would make cars theoretically cheaper in Bhutan by around 12 to 13 percent for smaller cars and upto 20 percent for bigger cars.

However, the the government in order to make up for the revenue lost from the excise duty, prevent a big increase of car imports and depletion of the rupee reserves, is moving the sales tax from the point of entry to the point of sale.

This, in short, means while the tax rates will remain the same the tax amount will go up. Vehicle dealers are already working the tax calculations to see if the ultimate tax amount will remain the same or there will be a marginal drop.

Currently, when a car is imported it is taxed only at the point of entry or the cost price of buying the car by the Bhutanese importer which could be a vehicle dealer.

However when a tax is imposed as the point of sale it would not only include the cost price of import but also the profit margin of the dealer along with all other associated costs like transport, insurance etc.

For example a car imported by a dealer at Nu 400,000 at 25 percent sales tax may have to incur Nu 100,000 in additional sales tax at the point of entry in Phuentsholing. However, with the point of sale tax the dealer will not have to pay the point of entry tax but he would have to pay the higher point of sale tax. So at the point of sale the price of the car including the dealers profit and associated costs would be around Nu 600,000. Here the same 25 percent tax would attract a higher Nu 50,000 amount then the point of entry tax.

The government took this route as it does not have the power to alter the rate of taxes, the authority for which is only vested with the Parliament. The Parliament is only scheduled to meet in the winter session which was too far away to respond to the developing GST situation. The only other alternative would have been vehicle dealers continuing to stop the import of vehicles pending clarity on the issue.

]]>http://thebhutanese.bt/breaking-dealers-can-import-gst-discounted-vehicles-but-taxes-to-be-levied-at-point-of-sale/feed/0Additional delay and costs in Punatsangchu I and II after NGI reporthttp://thebhutanese.bt/additional-delay-and-costs-in-punatsangchu-i-and-ii-after-ngi-report/
http://thebhutanese.bt/additional-delay-and-costs-in-punatsangchu-i-and-ii-after-ngi-report/#commentsSat, 05 Aug 2017 04:52:33 +0000http://thebhutanese.bt/?p=16027The 1,200 MW Punatsangchu I and 1,020 MW Punatsangchu II is headed for more delay and cost escalations after a report by the Norwegian Geological Institute (NGI) recommended additional measures to strengthen the sliding right bank of P I, and approved the proposed works for the collapsed roof of the surge chamber in P II.

The NGI was hired by the PHPA management as a third party expert from February 2017 after the P I right bank slide kept sliding even after a three phase and ongoing expensive rectification measures, and also after the collapse of the roof of the cavern in the surge chamber in P II.

It has been learnt that the Bhutanese side pushed for the hiring of NGI to ensure that all full proof rectification measures are done and a fully safe project is handed over on completion.

The exact delay and cost escalation will be known after the Central Water Commission (CWC) of India does a presentation of the extent of engineering works to be done and the associated costs based on the NGI report. The CWC is expected to present its report by 14th August to the PHPA.

Even in the best case scenario the delay at the least is expected to be around four to five additional months. This being the time period from February to July when NGI did its study and presented the report.

The PHPA MD R.N Khazanchi conceded that there would be at least up to a four month delay at this point of time. He said there would also be a cost escalation thought it would be nominal compared to the project cost and the loan interest being borne by the project due to delays.

This would mean that the earlier 2021 end to the first quarter of 2022 completion date of P I could well move into mid 2022 and possibly beyond. In the case of P II the September 2019 deadline of P II could move into January 2020 and beyond.

P I

In the case of the P I project a major never development is that the NGI report has asked PHPA to excavate large amounts of soil and rocks from a much higher place of 150 to 200 meters from the current point of excavation and stabilization.

This would lead to less pressure on the slope from above but would also lead to a gentler slope. To achieve this benches of steps will have to be created at around 30 meters height along with cement grouting and 325 mm ‘dia piling’.

Cementing grouting is pumping in cement into cavities and also on the surface to stabilize the slope while dia piling is equivalent to driving in large steel and concrete nails into the mountainside to fix the lose surface slope to a stronger bed rock deeper in the mountain.

However, with the need to clear more soil from the top the NGI report anticipated that around 30 acres of mainly paddy land belonging to around 32 households may have to be acquired. This private land acquisition is also expected to lead to more delays.

In P I a major source of concern and potentially even longer delay is that any work to clear the top would have an impact on the ongoing dam construction excavation at the bottom. This is because of safety concerns that boulder and materials from the top could tumble down to the dam site.

This would mean that work cannot be carried out simultaneously without grave safety risks. Here Khazanchi said that the additional work will be carried out in parallel with the dam excavation. However, on safety related questions by this paper Khazanchi said that the steps will take care of issues but even for safety concerns work can be scheduled at different periods.

P I in July 2013 saw a slide happening on its right bank and since then the CWC has done works to stabilize the slope in three phases with significant cost. The approach has been to do some work and then observe for slides. There was a Nu 3.5 bn price tag attached at the time for the rectification measures. However, even after the third phase of the rectification measures by CWC the machines detected a slide of 5 to 10 mm a month. This was the final push that got the Bhutanese side to recommend NGI for third party advice on the issue.

Given that the project was originally supposed to be completed by November 2016 this would mean around a six year delay. The last approved project cost of the project in July 2015 was around Nu 93.75 bn. The P I project has been plagued by delays and cost escalation on account of its dam relocation and the subsequent right bank slide.

P II

In the case of the P II project the NGI has largely approved the proposal developed by CWC and WAPCOS.

In January 2016 the P II project came across a shear zone or geologically weak zone in its downstream surge chamber in the power house complex which lead to the death of six Indian workers after a the roof of the cavern collapsed.

The collapse has blocked of the North side of the tunnel while the South side is still open. The PHPA is burrowing two access tunnels from the side to reach the area but given the shear zone the work is being done slowly and carefully along with experts from the National Institute of Rock Mechanics from India.

The nature of the task can be understood from the fact that the body of the workers are still buried under the rubble.

The affected area is around 90 meters in height and around 100 meters in length.

It has been understood that the Bhutanese side has proposed a new rock bolting technology used in the Dagachu project in the case of the P II project.

The last approved cost of the P II project in 2016 was Nu 72.90 bn.

]]>http://thebhutanese.bt/additional-delay-and-costs-in-punatsangchu-i-and-ii-after-ngi-report/feed/1No GST discounts until RGoB agreeshttp://thebhutanese.bt/no-gst-discounts-until-rgob-agrees/
http://thebhutanese.bt/no-gst-discounts-until-rgob-agrees/#commentsSat, 05 Aug 2017 04:49:49 +0000http://thebhutanese.bt/?p=16025Bhutanese businesses and consumers expecting a dramatic drop in the price of GST item goods like cars, electronic and machinery items and most consumer goods from India will not see it happen until Bhutan gives the go ahead to the Indian government.

There is an official understanding between the two governments that the matter should be put on hold until a green light is given from Bhutan.

The Indian exporters to Bhutan in turn are waiting for permission from the Indian government otherwise they would be taking a big risk of not getting back their GST refund.

This has been promoted by the fact that the Bhutanese government is in the midst of coming up with a ‘middle path’ solution to the GST issue.

A senior government official, on the condition of anonymity said that the government is looking at a few options.

One option before the government is to go along with India’s GST and so ask the Indian government to not impose the GST for its zero rated export items to Bhutan. However, this would result in not only a huge excise duty revenue loss for Bhutan of around Nu 1.4 bn a year but also lead to a huge increase in imports and the subsequent depletion of Bhutan’s hard won rupee reserves.

This is in fact the government’s biggest fear of not only losing revenue but also unbalancing the economy by huge overnight exports especially in relation to cars. This is because just for cars the prices could drop by up to 15 percent and even more so for bigger cars.

So this clearly will not be allowed to happen said the government official.

Another option being explored by the government is to ask the Indian government to apply GST at source and later refund it to the Bhutanese government like the Excise Duty Refund of the past.

However, the problem with this strategy is that at a time when people are expecting prices to drop it would in fact push up prices as GST, which is a combination of taxes into one, is higher than Excise duty.

A third option being looked at by the government is to look at the non essential items like higher end cars, luxury goods etc and ask the GoI to impose GST at source on them while not imposing GST on items used by ordinary Bhutanese people.

The problem here for the government is that since the GST is a set rate it cannot negotiate the rate of the GST and so there could again be big discrepancies in prices among items.

With the Parliament session months away the government at the moment also cannot alter the tax rates to balance any GST effect.

So an additional tool being considered by the government is moving the sales and custom duties tax from the point of entry to the point of sale.

Currently when a car is imported it is taxed only at the point of entry or the cost price of buying the car by the Bhutanese importer which could be a vehicle dealer.

However when a tax is imposed as the point of sale it would not only include the cost price of import but also the profit margin of the dealer along with all other associated costs like transport, insurance etc.

For example a car imported by a dealer at Nu 400,000 at 25 percent tax may have to pay incur Nu 100,000 in addition tax at the point of entry in Phuentsholing. However, with the point of sale tax the dealer will not have to pay the point of entry tax but he would have to pay the higher point of sale tax. So at the point of sale the price of the car including the dealers profit and associated costs would be around Nu 600,000. Here the same 25 percent tax would attract a higher Nu 50,000 amount then the point of entry tax.

The government official said that government would take around one to two months to finally come to a decision as they were currently seeing and collecting data on the effects of GST upon the prices of goods in India and also the profit margin among other things.

The official said that ultimately the government would like to go for a middle path way where government revenue is not harmed, exports don’t go out of control and harm the rupee reserves and at the same time prices also do not go up.

The main worry for the government among the imports is car imports, given not only its price, but it subsequent role in fuel imports which is Bhutan’s largest import item every year.

So without a green signal from the Bhutanese government, vehicle dealers in Bhutan are not able to make GST exempt car imports and are still stuck with the current stock imported before the application of GST.

Currently the items not affected are non GST essential items which are mostly food and agricultural items.

The GST is a single integrated taxation system within India that combines a dozen state and central taxes in India into one with rates varying from 0 to 28 percent.

What is of interest and relevance to Bhutan is that GST is also targeted at making Indian exports more competitive with zero tax and imports more expensive with higher taxation.

For exports from Bhutan a Bhutanese delegation to India requested that instead of collecting GST at the point of entry making it more expensive for Bhutanese exporters it instead be collected at the point of sale like in the earlier system.

The Indian government in this regard asked Bhutan to wait for a couple of months before considering Bhutan’s requests given that India itself is still implementing GST.

The Minister for Works and Human Settlement (MoWHS) Lyonpo Dorji Choden during the monthly meet the press confirmed that for exports from Bhutan, the government was negotiating with India to levy GST at the point of sale in India.

On the import front Prime Minister Lyonchhen Dasho Tshering Tobgay confirmed that the government was exploring among others the two options of either a GST levy at source and refund to Bhutan like the excise duty of the past or changing the taxe collection from the point of entry to the point of sale. He said on changing the taxes from the point of entry to point of sale the government was also exploring the legal position on the issue.

]]>http://thebhutanese.bt/no-gst-discounts-until-rgob-agrees/feed/1No vehicle taxes in the offinghttp://thebhutanese.bt/no-vehicle-taxes-in-the-offing/
http://thebhutanese.bt/no-vehicle-taxes-in-the-offing/#respondSat, 05 Aug 2017 04:41:32 +0000http://thebhutanese.bt/?p=16022With the Royal Monetary Authority (RMA) reducing the loan limited from 50 to 30 percent to control the imports of vehicles and suggesting the government to come up with fiscal measures, the popular over night perception was that vehicles taxes are on the way.

However, the Prime Minister Lyonchhen Dasho Tshering Tobgay and the Minister for Works and Human Settlement Lyonpo Dorji Choden ruled out any increase in vehicle taxes.

Lyonpo Dorji Choden said that import of vehicles is still a need. She said the main worries were in the congestion of the Thimphu Thromde but that other areas of Bhutan is still largely not congested.

She said that the government noted the RMA’s monetary measures and so with such measures the government for the time being feels there is no need to apply taxes or ban vehicle imports.

The Prime Minister said that vehicle taxes had been increased just three years ago and so the government cannot just keep increasing taxes to take away the hard earned money of the people.

The PM also said that the congestion is mainly in Thimphu and not outside and so it is not fair to make the rest of the nation pay for the congestion in Thimphu.

Lyonchhen pointed out that though here are 46,000 vehicles in Thimphu the RSTA and Traffic police are doing a wonderful job managing the traffic.

He said that the government has asked the Ministry of Information and Communication (MoIC) to do a study on the carrying capacity of Thimphu and come up with separate recommendations to deal with the issue.

As per the RSTA there are around 88,000 vehicles in Bhutan as of June 2017 with imports surging every year.

]]>http://thebhutanese.bt/no-vehicle-taxes-in-the-offing/feed/0First ever national earthquake monitoring network installedhttp://thebhutanese.bt/first-ever-national-earthquake-monitoring-network-installed/
http://thebhutanese.bt/first-ever-national-earthquake-monitoring-network-installed/#respondSat, 05 Aug 2017 04:31:19 +0000http://thebhutanese.bt/?p=16019The Department of Geology and Mines under the Ministry of Economic Affairs has completed the installation of six seismic stations and twenty intensity meters in the country last month. The monitoring networks will help in providing information about the location and the magnitudes of the quake and help in assessing the degree of the tremors felt in the different locations where they have been placed.

The six seismic stations have been established in Thimphu, Bumthang, Trashigang, Samdrup Jongkhar, Gelephu and Samtse which covered the four cardinal directions of the country. The intensity meters have been installed in all the twenty Dzongkhags.

“The earthquake monitoring network called seismic stations will provide information on physical location of earthquakes (epicenter), magnitude and behavior of micro seismicity. Seismic data from this network will be used to depict source structures, rupture mechanisms and generate earthquake hazard maps,” said Jamyang Chophel, Senior Engineering Geologist, who is also the project focal person.

Jamyang said that the six dzongkhags have been chosen for the establishment of the seismic stations to cover every direction of the country with uniformity. The areas for the establishment of such stations have been chosen where there are less disturbances, so that the sensors can accurately detect the seismic waves.

He said that based on the shake Maps generated post disaster planning can be done accordingly when communication networks fails, which will help in the efficient rescue and evacuation processes.

The project focal person said that the installation of the monitoring networks is a landmark achievement for Bhutan as the country was among the very few in the world without such advanced monitors.

He also explained the challenges faced in tapping the full potential of such monitoring networks. “We face lots of communication hurdles. We used Bhutan Telecom network and it is not at all reliable, so there is the need for proper enhancement in the communication field. We’ll try to get better communication during unanticipated events when mobile networks fail by requesting the government to use their internet network with higher speed and we will also explore means through satellites.”

He added that the support from relevant stakeholders like Bhutan InfoComm and Media Authority and Department of Information Technology and Telecom will greatly help in rendering better services during times of need.

For more accuracy and proper monitoring, the Ministry has plans to install more intensity meters in all the 205 Gewogs in the country and a separate project is in line to establish 3 more seismic stations.

The networks have been established with the financial assistance from World Bank under the supervision of Japan Policy for Human Resource Development project and also in collaboration with National Research Institute for Earth Science and Disaster Resilience and Kyoto University from Japan and Regional Integrated Early Warning System based in Bangkok.

The project which started in May 2013 was completed at the end of July this year.

]]>http://thebhutanese.bt/first-ever-national-earthquake-monitoring-network-installed/feed/0The systemic failures within BDBL that led to a Nu 576 mn fraudhttp://thebhutanese.bt/the-systemic-failures-within-bdbl-that-led-to-a-nu-576-mn-fraud/
http://thebhutanese.bt/the-systemic-failures-within-bdbl-that-led-to-a-nu-576-mn-fraud/#respondSat, 29 Jul 2017 05:10:18 +0000http://thebhutanese.bt/?p=15974While the Anti Corruption Commission (ACC) report pinpointed the illegal and inflated term loans and Over Draft loans given by a Bhutan Development Bank Limited (BDBL) project officer, Pema Nidup, coming to around Nu 576 mn, questions remain about the system and lack of oversight that allowed this to happen.
Office order saying no need to verify OD withdrawals

A reliable source told this paper that there were several issues of not following established procedures and also lack of supervisory control that contributed to the fraud happening.

The BDBL bank, like most banks, has a list of financial manuals that list out the procedures and processes to follow.

One key area process that was not followed was on the disbursement report generated by the system every month. This report was supposed to be verified and signed by all the staff involved in the loan or OD disbursement from the loan officer to the supervisor and in between.

If this important process had been followed then the fraud would either not have happened or would have been caught at an early stage.

Ironically, while this process was not followed in the BDBL headquarters in Thimphu, where the fraud happened, the BDBL branch offices had been told to follow this.

Another serious issue is an office order dated 12th December 2014 and signed by the BDBL deputy Managing Director of Operations Sonam Rigyel. The letter in point number six states, “Over Draft withdrawals by our clients through the current cheque account cheques shall not have to go through the verifying process.”

This meant that this lack of another level of check and balance meant that BDBL was in no position to verify the large withdrawals made from its inflated OD accounts. This order was applicable only to the main branch where the fraud happened.

It was also the lack of supervisory control and checks and balances that lead to the sharing of a common system password which allowed for the illegal loan enhancements. This is even more serious as it happened under the noses of the top BDBL brass in Thimphu.

Another strange matter is also the fact that though BDBL was subject to its own internal audit and checks by the Royal Audit Authority and Royal Monetary Authority respectively the above fraud was not detected raising questions on the thoroughness of these audits and checks.

A source said that a BDBL staff had got suspicious about the huge withdrawals and the perpetrator and informed her supervisor but she was told that there is no problem.

When the fraud was found out around the last quarter of 2016 through sources, which included an anonymous letter, it took around a week to block the account during which more withdrawals were made.

The whole above incident raises question about the institutional culture in BDBL.

It has been learnt that the RMA over the years questioned the fitness and qualifications of some of BDBL’s board members but no action was taken by either the board or the Ministry of Finance which is the parent agency of BDBL.

In the last round of annual bonuses, despite the fraud, bonuses of up to three months of 80 percent of the pay were given to members of the senior management.

The BDBL over the years had a string of fraud and embezzlement cases but things do not seem to have improved. The board which was under question from RMA for its membership has also not been able to bring about better accountability within BDBL.

The Deputy MD of Operations Sonam Rigyel clarifying on the office order with relation to the OD said, “The matter was discussed in a committee and approved. The intention was to facilitate better and faster services to the customers at the main branch. The office order would not have contributed to the misuse of loans as the misuse had to do with the loan enhancement and sanction, and a lot of the issues happened with the term loans. “

He said verifying OD withdrawals would have lead to a kind of harassment for customers and he reasserted that the order in no way contributed to the fraud.

The Deputy MD stuck only to the office order signed by him and said he was not authorized to talk about the other aspects above.

Repeated attempts to get a response from the BDBL management on other aspects could not elicit any response.

]]>http://thebhutanese.bt/the-systemic-failures-within-bdbl-that-led-to-a-nu-576-mn-fraud/feed/0More than the Doklam issue, Bhutan worried about hydropower projects and tradehttp://thebhutanese.bt/more-than-the-doklam-issue-bhutan-worried-about-hydropower-projects-and-trade/
http://thebhutanese.bt/more-than-the-doklam-issue-bhutan-worried-about-hydropower-projects-and-trade/#commentsSat, 29 Jul 2017 04:33:13 +0000http://thebhutanese.bt/?p=15971Some people say that Bhutan is an Indian ‘protectorate,’ which is not only an inaccurate assessment, but shows a lack of understanding of the increasingly complex and diversified nature of the relationship between the two countries.

The Doklam standoff on territory claimed by Bhutan has gone on for a full 45 days and is expected to go on longer.

In this short period there has been a profusion of articles from both Indian and Chinese news outlets that supposes many things for Bhutan, including speculation about the impact this crisis will have in relations between Bhutan and India.

The Royal Government of Bhutan (RGoB) has made its position clear in a demarche issued to the Chinese Embassy in Delhi by the Bhutanese Embassy on June 20, on the road construction being carried out by the Chinese, followed by a more detailed statement issued by Bhutan’s Foreign Ministry on June 29. India’s Ministry of External Affairs stated on June 30 that it moved into the area after “coordination with the RGoB.”

To make it eminently clear, while Doklam is allegedly “disputed” territory between Bhutan and China it has a far bigger impact on India’s security, in the analysis of India’s own experts and commentators.

This is one key reason why Bhutan did not accept a generous ‘package deal’ from China in 1996, that offered not only the larger disputed 495 sq km in the central sector but also a part of the 269 sq km western sector, in exchange for sections of the 269 sq km which includes Gyemochen, claimed by China as the tri-junction.

In short, though Bhutan stands to gain more disputed territory and also solve the border issue with China, it has steadfastly not done so in 24 rounds of border talks from 1984 onwards, so as to protect India’s security interests in the western sector.

The assertion by some in India that Bhutan did not protest past road building activities by the Chinese is not accurate. There are records of the issue being raised in not only repeated protests with the Chinese embassy in Delhi, but also raised numerous times in Bhutan’s Parliament sessions in the past.

Apart from the matter of the tri-junction, Bhutan as a buffer country shares 477 km of its northern border with China — which India doesn’t have to worry about — and another 600 km of southern border with India including on the narrowest part of the “Chicken’s Neck,” that sliver of territory which starts from Siliguri going all the way to Assam up to Arunachal Pradesh.

It must be mentioned here that in the 1962 Sino-Indian conflict, Chinese troops did not make any incursions into Bhutanese territory along the entire 477 km northern border.

Similarly, when it comes to India’s internal security, in 2003 the Fourth King, His Majesty Jigme Singye Wangchuck personally led his troops to flush out thousands of ULFA, Bodo and Kamtapuri militants based in the thick jungles of southern Bhutan. This is apart from the support Bhutan provides to India at various international forums, including the UN, apart from being the only country which, along with India, has not joined China’s One Belt One Road (OBOR) summit. Bhutan is also not a member of the China-led Asian Infrastructure Investment Bank (AIIB), where India is a member. Bhutan, as is well known, does not have diplomatic ties with China.

Now some observers have taken all of the above to imply that Bhutan is an Indian ‘protectorate,’ which is not only an inaccurate assessment, but shows a lack of understanding of the increasingly complex and diversified nature of the relationship between the two countries.

It also shows a lack of understanding of Bhutan both domestically and externally. In Bhutanese culture we have a set of values and cultural philosophy called the ‘Driglam Namzha,’ which some refer to as codes of conduct but it is much more than that. One of the important messages and lessons of this philosophy is having the ability to stoop and conquer, and this message, imbibed by the Bhutanese leadership, is all the more important for a small country stuck between two giant neighbors.

This is what Bhutan has done over the decades winning India’s trust and benefitting from its generosity in the form of grant assistance for our five year plans and other projects, and at the same time not giving any reason for China to see Bhutan as a hostile neighbor.

Bhutan, at the same time, is not a pushover, as imagined by some. For example, the Parliament recently refused to pass the Bhutan-Bangladesh-India-Nepal (BBIN) Bill on improving land connectivity in the region (citing superior pollution norms, carrying capacity of Bhutan’s transport infrastructure, illegal immigration, cultural impact), which even the usually more argumentative Nepalese agreed to.

However, this practical and close relationship between Bhutan and India is getting tested, not so much in the heights of Doklam, as with issues in the growing and unsustainable trade imbalance and setbacks in the hydro projects promised by India. India is Bhutan’s largest aid donor in its five-year plans, but even though Indian assistance has been increasing in absolute numbers, its share of the plans has been falling primarily on account of Bhutan’s own growing economy and needs.

It is also a fact that any Indian assistance for Bhutan’s five-year plans is virtually wiped out in a year or a year and a half’s worth of trade deficit, mainly with India. This trend has only been increasing over the years. India committed Rs 4,500 crores out of Bhutan’s Rs 20,210 crore expenditure for the ongoing 11th plan from 2013-2018. However, just in 2016, Bhutan’s trade deficit was Rs 3,200 crores, of which more than 90 percent was with India.

This is what led to a severe rupee crisis or shortage in 2012 for Bhutan, leading to a lot of economic pain in the form of slow growth, frozen credit, import bans and cut backs, and it more than anything else, played a decisive role in the 2013 elections. The impact of the last minute withdrawal of subsidies by India is over hyped as the former Druk Phuensum Tshogpa government, by all accounts, was set to lose due to the painful 2012 economic crisis and some governance issues.

Bhutan has always been acutely aware over the decades that it cannot sustain an economy without becoming self sufficient and restoring this trade imbalance. In that sense, selling hydropower to India and contributing in its economic growth has long been held as the one main salvation to Bhutan’s economic woes.

Not long after the 2003 operations by Bhutan, there were discussions between India and Bhutan at the highest levels and 5000 MW worth of hydro projects by 2020 was agreed to, on the lines of then ongoing 1,020 MW Tala project which had been completed by 2006 and which had pushed Bhutan’s total hydropower generation to 1,400 MW.

It is a fact that Tala is Bhutan’s largest earner of foreign currency coming to around Rs 700 crores a year but it is also a fact that it barely covers Bhutan’s fuel imports for a year. Tala was built on 60 percent grant and 40 percent loan component.

The grant component while easing financing for Bhutan also benefitted India with the world’s cheapest tariff rate from 2007 onwards which even until recently was Nu 1.80 per unit even while prices in India’s Power Exchange markets reached around Rs 7 to 8 per unit in the past few years.

In 2008 the then Manmohan Singh government under UPA II committed to doubling this 5,000 MW to 10,000 MW by 2020 on the request of Bhutan’s first elected government, as hydropower was seen as the main economic activity that would make Bhutan self sufficient and reduce trade deficits.

The ‘10,000 MW by 2020’ from a key economic project became a central diplomatic pillar and mantra between the two countries that defined the mutually beneficial relations between the two countries. It also became a frequently cited template by both India and Bhutan while having discussions on energy cooperation with Nepal and Bangladesh.

The initial 5,000 MW projects were largely understood to be ‘Tala like’ projects with soft financing and full RGoB ownership but since the ante was upped to 10,000 MW, India asked and was given, a 50 percent stake in four hydro projects as ‘Joint Venture’ projects. The earlier 60 grant and 40 loan scheme was changed to a more stringent 30 grant and 70 commercial loan scheme.

However, starting from 2014 onwards itself, Bhutan woke up to a rude economic shock when the new NDA government made it plain that 10,000 MW by 2020 would no longer be possible due to “financing concerns”.

Instead, in addition to the ongoing construction of the 1,200 MW Punatsangchu I project, 1020 MW Punatsangchu II project and 720 MW Mangdechu project, where Bhutan would have full ownership, the Indian side pushed to implement the four joint venture projects. These are the 770 MW Chamkarchu project, 600 MW Kholongchu project, 570 MW Wangchu project and 180 MW Bunakha project coming to a total of 2,120 MW.

This left Bhutan flummoxed as the four JVs and tougher financing conditions of 70 loan and 30 grant had been agreed to as part of a larger 10,000 MW deal that included the 2,500 MW Sunkosh reservoir project and the 2,640 MW Kuri Gongri reservoir projects.

The two reservoir projects are important for Bhutan from the point of view that unlike the other run of the river projects that cannot generate much power in winter, the reservoirs would generate power on a year round basis and thus allow not only export of power but also enhance Bhutan’s industrial development.

The JV companies from the Indian side, which were Indian PSUs from day one, rubbed off the RGoB the wrong way, from making demands that went beyond the larger JV agreement between the two governments to asking for more management control and even refusing to come up with the agreed financing.

If this was not enough India’s power ministry on December 5, 2016 issued a Cross Border Trade of Electricity (CBTE) guidelines with inputs from India’s Ministry of External Affairs. The CBTE, though meant to be a general cross border electricity trade guideline, was seen to be mainly targeting Bhutan as it, using the monopoly of India being Bhutan’s sole power market, restricted the type of hydropower investments that could be made in Bhutan, put Bhutan at a disadvantage in setting future tariff rates beyond the current government to government formula and denied Bhutan access to India’s primary power market where tariff rates are more competitive.

Strangely CBTE even asked that any power trading company exporting power to India from another country (read Bhutan) would be required to have 51 percent Indian ownership.

With such a drastic change in the 10,000 MW commitment followed by such unfavorable terms especially with the JVs and CBTE, Bhutan has refused to sign the Concession Agreement for the JV projects citing the manner in which CBTE and the demands of JVs violate the agreement between the two governments.

As if matters couldn’t get any worse India declared itself to be power surplus in 2017 with falling tariff rates that now puts the entire hydropower sector of Bhutan in jeopardy.

In another additional blow, Bhutan’s trade deficit is set to worsen as India’s Good and Services Tax (GST) taxes makes its exports to Bhutan cheaper and imports from Bhutan more expensive. The small but important industrial belt in southern Bhutan that contributes in a major way to Bhutan’s taxes and economy is in a crisis mode. Though the RGoB recently asked the Indian government for an exemption from GST, based on GST regulations that allow for it in a bilateral context, the Indian government has asked Bhutan to wait for a while.

With Bhutan’s entire economic hopes pinned on selling hydropower to India falling short, there are now serious challenges and consequences for Bhutan’s economy in the face of a growing and unsustainable trade deficit. While some may assume or have calculated that this would make Bhutan more dependent on India, it may very well have the opposite impact as Bhutan would have to really explore a host of economic options to sustain its economy in the long run.

In the bigger picture for Bhutan, Doklam, no doubt, is a serious issue, but it is a comparatively minor distraction compared to the developments in the economic sector.

By Tenzing Lamsang

The writer is the Editor of The Bhutanese Newspaper. This article was also published in the Indian Express Newspaper in India.